Tuesday, April 15, 2014

Attorneys' Fees in Collections Cases, Part I.

The question is: When can a judgment creditor recover post-judgment attorneys’ fees incurred in enforcing a judgment? The relevant statute, § 685.040 of the Code of Civil Procedure, consists of three sentences, providing that: (1) a judgment creditor can recover its costs in enforcing a judgment; (2) attorney’s fees do not count as costs unless provided by law; and (3) attorneys’ fees are included as costs if the underlying judgment contained a fee award under § 1033.5(a)(10)(A), which permits a fee award as costs when authorized by contract. This case did not involve an award of fees under a contract—they were awarded under § 996.480, which permits a fee award for obtaining a judgment against a surety. The debtor’s surety argued that sentence #3 did not apply, so a fee award was inappropriate. But the court rejects the argument. If awarding attorneys’ fees as costs is authorized by a statute, it is irrelevant whether the underlying judgment contained a fee award under § 1033.5(a)(10)(A). Sentence #2 deals with any statutorily authorized award of fees. Sentence #3, which is specific to contract cases, does not limit sentence #2. Indeed, sentence #3 was added to § 685.040 years after the original passage of the Enforcement of Judgments Act. The clear legislative purpose in adding sentence #3 was to reverse Chelios v. Kaye, 219 Cal. App. 3d 75 (1990). Chelios involved a judgment obtained on a contract claim where the contract included a fee provision under Civil Code § 1717—and thus treated the creditor's attorneys’ fees as a cost under § 1033.5(a)(10)(A). It held that counting the creditors fees incurred on collection as costs was nonethless inappropriate, because the contractual fee provision supposedly merged into the judgment and ceased to have any effect. Sentence #3 does away with that.As I said, the facts here have nothing to do with a contractual fee award. The creditor is trying to make good against the debtor’s surety—which had posted an appellate bond at some point in the ten-plus year history of this litigation but was trying to weasel out of paying it. Section 996.480 specifically authorizes a creditor to recover attorneys’ fees it incurs in holding a surety to up its obligations. Consequently, an attorneys’ fee award for the collections efforts was clearly authorized by statute and thus recoverable under sentence #2 of § 685.040.Reversed.